Happy Christmas & Earn £100 referral fees

I'd like to wish all current (and future!) customers a Merry Christmas and all the best for 2011.

There won't be a blog update next week, but I'll start early in the New Year with "Top 10 Tips for buying rental property", which covers the theme that has been most requested since I started this blog.

Over the Christmas period, we'll also be updating our list of landlord who want to buy in 2011 - Let us know if you're not on the list, and want to be.

Finally, we're short of properties to rent, and are paying referral fees for the first time since 2007! If you know anyone with a vacant property in Rugby or Northampton, or is struggling to let it with another agent, REFER THEM TO US - we'll pay you £100.00 if we successfully let their property. This is valid for all referrals received before the end of February 2011. Please refer to myself - richard.baker@belvoirlettings.com.  

What's the point of an inventory?

A landlord will often ask if he really needs an inventory. "It's unfurnished, yes? So there's nothing to list" is a response we often hear. However an inventory doesn't just record things that are in the property, it also records the condition in which the property has been given to the tenant, which can be really important when the tenancy comes to an end.

The reason for this is that the law now assumes the tenancy deposit belongs to the tenant. If a landlord wants to claim on a deposit, he must be able to prove that the condition of the property has changed during the course of the tenancy. If there's no record of the property condition at the start of the tenancy, its more or less impossible for a landlord to claim the condition has changed at the end. It has been this way since new deposit rules came in in 2007.

For this reason, a landlord without an inventory is on weak ground. I had a landlord with a 2 bed apartment who insisted they didn't need an inventory - the property was unfurnished and they had never had one previously. The tenants didn't trash the property, but they did cause damage to a couple of carpets that the landlord wanted replaced. The tenants however claimed the carpets were in poor condition at the start of the tenancy and as such hadn't been damaged by them. When the deposit dispute went to adjudication under the new rules, the adjudicator was unable to decide which party was correct and as such awarded the full deposit to the tenant by default. The landlord thus had to pay for his own new carpets. 

To further enhance the landlords position, good inventories these days are done with a video camera. This eliminates the potential for argument over what a written inventory actually means. "Painted door with small mark towards bottom" is ambiguous. A video showing exactly what that small mark looks like can't really be argued with! We introduced video inventories in Northampton in 2007, and in Rugby in 2010. They cost the landlord a bit more, but since their introduction none of our landlords who has taken one has ever lost a deposit claim to a tenant. As such there's an argument they are money well spent.

Richard.

The importance of an exit strategy.

Recently I was chatting to one of my landlords who has property in a number of UK towns. The three he has in Northampton, he told me, will be sold in 2017 and 2018. This was interesting, because the guy had genuinely planned to the ‘nth’ detail how he was going to exit the investment property market. How many of my other landlords, myself included, could honestly say they had thought this far ahead?

Well I hadn’t, but of course I knew I should. I asked a couple of other people I happened to speak to in the next 48 hours when they would exit the rental market, and got the sort of answers I expected – “in a few years when prices are higher” or “never, I want the income instead of a pension”. Some will get lucky and earn a few pounds in the process, while others will make less than they should have. The ones that make the most when they sell, will be the ones that have done proper research, made proper plans, and tied their property portfolio in with the rest of their financial affairs. Things they will look at include:

• What will it cost me to sell my portfolio?
• Will I incur loss of rent during the sale process?
• What are the mortgage implications (redemption penalties etc)?
• Are there leasehold implications (will I need to renew the lease before I sell)?
• What are the capital gains tax implications?
• Could there be an inheritance tax issue?
• What will happen to the proceeds of sale?
• Is it beneficial to move the house into joint names prior to the sale?
• How does this fit with other financial issues such as maturing investments, pensions, etc.

These are probably areas in which it’s not good to dabble! When you buy an investment property, you talk to ‘experts’ regarding what is or isn’t worth considering. When you sell a property it should be no different - If you exit the market in a planned manner, you’re likely to be far more successful than if you exit quickly because ‘something has come up and I need the cash’!  Advice can be sought from Financial Advisors or Wealth Managers – Belvoir has good contacts in these areas if you don’t know people yourself. It’s another area that will separate the professional landlord from the novice.

Richard.

Rental Insurance - is it worth it?

Apologies in advance - there's a sales pitch in this blog! However it's a sales pitch that has a benefit for the landlord.

A landlord can purchase Rent & Legal Insurance for his property. There are a number of different providers in this area, offering very different policies. The more basic policies are usually given away by lettings agents as a freebie at the start of tenancies - they offer some cover, usually with a number of restrictions, if the tenant doesn't pay the rent. As such the landlord may be able to recover some of the money he loses. 

Other policies are chargeable to the landlord. The Belvoir Rent & Legal Cover is one such. Because it's chargeable, some landlords don't take it, although to be fair the majority do. But what do you get for your £126.00 per annum? Let's look at the case of 2 landlords with problem tenants:

Mrs Singh

• Mrs Singh did not have Belvoir Rent & Legal Cover.
• Tenants lost job and lost their ability to pay rent. They applies to the Local Authority to be housed, but were told this was not possible until they were homeless and their landlord had a court order making them vacate their property. As such the tenant did not leave the property.
• Mrs Singh had to apply to court for possession of her property, again for an eviction order, and again for the bailiff to visit. She could not attend court herself, so had to pay for a solicitor on each occasion - total cost including court fees £1050.00.
• Whilst the court process was ongoing, Mrs Singh received no rent from the tenant. This represented a total loss of £2400.00.
• When the property was reclaimed, Mrs Singh had to pay for a lock change, some clearing and clearance, and it was a month before another tenant was found. Total cost to Mrs Singh of £840.00.

Total cost to landlord £5,250.00

Mr Cornish

• Mr Cornish did have Belvoir Rent & Legal Cover.
• His tenant didn't pay rent, vacated the property, and he ended up with third parties living there who would not leave.
• It took 5 months to end the tenancy, via a court application, an eviction order, and a bailiff visit. No rent was paid in this period. 
• Mr Cornish DID have to manage his own cash flow on a short term basis. However when the property was finally reclaimed, Mr Cornish received £5460.00 from the insurer covering ALL his rent, ALL his legal fees, and ALL his court costs. 

Total cost to landlord £326.00 

(£126.00 insurance premium, £80.00 lock change, £120.00 cleaning) .

It should be noted that very few tenancies fail, and those that do can usually be resolved amicably between landlord and tenant. However if you do end up with a rogue tenant, the law is heavily stacked in the tenants favour - this is when the insurance cover becomes worthwhile as although it cannot remove the frustration, it does remove the financial worry.

Richard.

What's happening with rental prices?

Recently, there's been a lot of talk in the national press about an increase in rental prices. People are struggling to buy houses currently due to strict lending criteria, and people also aren't moving out of rental property, so if you're looking for somewhere nice to rent, it's a lot harder to find something than it was say 12 months ago. This is the case in both Rugby and Northampton.

So have we seen rental prices increasing as a result? Certainly not across the board is the answer, and there are probably a few reasons for this:

1. The natural time to change the rent is when your tenant vacates and you have a new one going in - only this isn't happening much at the moment. To change the rent, landlords have to apply for an increase mid tenancy - and whilst there is confidence in the market, it's still a brave landlord who calls his tenants bluff and risks losing them over a small rental increase.
2. Property condition remains a massive factor in a landlords ability to increase rent. When the newspapers state there is a shortage of rental property, they mean a shortage of good quality rental property. Whatever the market conditions, there's never a shortage of poor quality property to rent, and it's always hard to command a premium rent if the property is in poor order.
3. In certain sectors of the market, there's still oversupply of property. Two bedroom apartments in Northampton for example, are still in plentiful supply, and getting a significant rental increase in this area is tricky business.

Irrespective of this, there have been examples recently of properties getting excellent rents:

1. Two bedroomed house, St Crispins, Northampton, rented at £695PCM. Granted, it was in excellent order, but still the usual price for this would be around the £600 mark. Lucky landlord!
2. Two bedroomed house, Coton Meadows, Rugby, rented at £595PCM. This was in decent condition, and would usually fetch around £550PCM. However the landlord benefitted simply from a complete lack of competition and was able to get more rent.
3. Three bed house, East Hunsbury, Northampton, rented at £795PCM. Whilst a staple rental area, Hunsbury 3 beds usually peak at around £700PCM, with higher prices being achieved across the A45 in Wootton and Grange Park. Again this was a well presented property, which the landlord was able to achieve as the internal condition was genuinely spot on.

And what does the future hold for rental prices?  This isn't an easy question to answer, and if you ask three different 'experts', you'll get three different responses. As such the brutally honest response is probably "who knows"!

From my own perspective, I believe very strongly that the answer remains tied in to people's ability to buy property - as long as this remains difficult, people will have no choice other than to rent. This should keep demand high, and hold prices up too. If you are a landlord that has good quality property, you shouldn't have a problem 1) attracting a good quality tenant and 2) charging a decent rent. This hasn't always been the case though, so don't 3) start to think it's the norm and 4) base your future financial decisons on it!

Richard.

Property condition - speculate to accumulate!

As a student, I rented houses with issues! There were some structural problems with one property which meant that you could see daylight through the crack on the staircase wall. In another there were no internal doors upstairs – definitely a fire risk, but not something that particularly bothered the four of us that shared the house at the time! Why did we do it, I ask myself? Quite simply because we had no choice – 15 years ago there was a shortage of rental property so as a tenant, you took what was available.

This isn’t the case today. The buy to let boom of the last 10 years means that generally there’s a good supply of rental property for prospective tenants. Yes, there are periods of scarcity – right now there are fewer properties available than there were 9 months ago because people aren’t moving, but it’s still the case that if you are a tenant, you can be a bit selective over where you live.

As a result of this, it’s important these days that landlords maintain properties in good order. Gone are the days when you can get away with offering a substandard property. Northampton, which has seen a huge amount of new build in the last decade, has responded as a market to accommodate this – the stock of Victorian properties is generally in good order with landlords having updated to compete with the new build. New kitchens, bathrooms, and neutral décor are common. Rugby is going the same way too – although the Victorian stock is generally more dated in condition, Belvoir is now arranging the refurbishment of 1-2 properties per month for landlords who want to guard against empty periods. The properties that sit empty in Rugby, are the ones that need work.

It’s also a fact that updated properties have fewer void periods. Landlords sometimes tell me they can’t afford to update a property – finances may be tight, but there’s also an argument that they can’t afford not to, as an empty property will cost them more. I also see the ones that do spend on the property being rewarded in terms of better rents and fewer voids. One of the first properties I took on as a lettings agent was a refurbished Victorian terrace – the owner had spent about £8,000 getting it refurbished properly, and in the 60 months since, he’s had a void period of 1 month. The identical property opposite, also managed by ourselves, needs refurbishment. It’s been empty for 5 months out of the last 36, and the owner still has about £8,000 to spend to get it up to a decent standard. Financially, one has invested much better than the other.

My team will always contact landlords when a tenancy is coming to an end and advise if we think works are required. Our advice to landlords is always to keep properties tip top – it’s a classic case of speculate to accumulate.

Richard.

Need somewhere to rent? See a video of potential properties!

As part of our aim to make lettings easier, we're now offering video clips of many of the properties we have available. Have a look at this flat, available at £595PCM!

3 Bed Flat in Town Centre Rugby

We're streaming these videos from our own websites: http://www.bevloirlettings.com/northampton and www.belvoirlettings.com/rugby so tenants can see what they are getting before they view. We're not 100% there yet - not all properties have videos, and our technique will get better. At least it's something else the competition can copy! Good news is:

1. This is great for potential tenants who aren't in the area or who don't have the time to view multiple properties.
2. It's great when the existing tenant isn't giving easy access for viewings.
3. It's great when the existing tenant isn't the tidiest of creatures!
4. It weeds out the potential tenants who want to view everything, but still can't decide what they like.
5. It works for properties that look good inside, but maybe aren't that that photogenic externally!

We'll be working over coming months to improve our videos. Tips and feedback, as ever, will be much appreciated.

Richard.

To buy or not to buy..........

That’s the question! Which way is the housing market going? Lots of people comment intelligently on this subject, but in reality, who really knows? I have a number of landlords who are looking to invest further in property, attracted by recent falls in house prices. But should they jump in now, or should they wait? I’d suggest the following:

·        Housing is a long term investment, not a short term one. Over the last few years people have forgotten this and have treated the UK housing market as a ‘get rich quick’ scheme. As a result people who have invested for the short term are very much feeling the pain of being trapped in negative equity. Equally, there are plenty of plenty of others who are relatively unaffected – they are under no time pressure and are unconcerned by the recent dip in fortunes.

·        It’s more or less impossible to pick the bottom of the market, and because of my first point, it shouldn’t really be necessary to do so. If you manage to pick it, I’d suggest it’s more by luck than judgement. To be successful, you just need to make sure you don’t overpay in whatever market you’re buying in. My most successful landlords are the ones that pick up the bargains – they study the market, don’t get pressured into buying by estate agents, but when a genuine deal becomes available they move quickly and decisively. You’ll often find the best buys are properties in poor condition – successful landlords aren’t put off by this and simply include the cost of works in whatever they are offering for the property. However bad the market, well presented properties always command a relative premium and as such usually aren’t the bargains people think.

·        As we stand currently, the sales market is moving slowly in both towns – particularly in Rugby. The volume of sales being achieved by local agents has been low all summer, with sellers holding out for decent prices in an average market. If this continues, there has to be further downward pressure on prices in the next 3-6 months, which presents opportunities for serious investors. This further re-enforces the idea that whilst now is a good time to buy, it is extra important not to overpay.

In both offices, we maintain a list of landlords who are looking for more property in the near future. When we become aware of a suitable property, we email round and generally someone picks up a decent deal. 17 properties have been acquired by our landlords in this way in 2010. If you want to be included on these email lists, even if you’re not currently a Belvoir customer, drop me an email and let me know.

Richard.

Is your Lettings Agent solvent?

Housing Minister, Grant Shapps, recently announced that the Coalition Government do not intend to implement more regulation for Lettings Agents, despite this being a clear recommendation of the Rugg Review into the Private Rented Sector (http://www.york.ac.uk/inst/chp/publications/PDF/prsreviewweb.pdf).

For landlords and tenants, this is surely a shame. Currently lettings agents have little or no regulation unless they impose it upon themselves through membership of professional organisations.

Why does this matter?

Anyone can open a lettings agency. Before long that agency can be holding a small fortune in landlord’s rents and tenants deposits and there is no one checking that such money is properly accounted for. If the agent isn’t trading profitably – say they are charging stupidly low management fees to attract customers – there are additional pots of ‘client’ monies that it’s all too tempting to dip into, to meet their own expenses. Because of the amount of money a lettings agent has coming and going from their accounts, this practice can carry on for a long time (maybe years) before anyone realises there’s a problem.

Another factor is the tenancy deposit. You would assume that if the agent takes it, registers it, then spends it, the agent is liable. Not so! A tenancy agreement is between Landlord and Tenant – if the agent acts negligently or dishonestly, it’s the landlord that is legally liable to his tenant for the full value of the deposit. There have been recent examples in both Rugby and Northampton of Agents ceasing trading, the deposit monies going missing, and Landlords having to compensate their tenants. It is true that the Landlord could then sue his agent for negligence, but if the agent has shut up shop, or spent the money already, the chances of success are slim.

What’s the solution for a landlord?

Ideally, all agents should be regulated and face frequent compulsory checks on their accounting procedures.  I’d actually go a stage further and say that some sort of professional competence test would be useful, but in honesty we’re years away from this. The majority of decent agents, ourselves included, would welcome regulation as we have nothing to hide, and much to gain. It was on the agenda but with the change of government, is no longer.

The best bet for a landlord is to stick to an agent that is a member of a professional body such as the Association of Residential Lettings Agents (ARLA). To become a member, the agent has to firstly have their accounts audited regularly by a qualified accountant, and secondly has to hold Client Money Protection Insurance, so if there are problems, liability to clients is covered. ARLA won’t let an agent in without this, and checks all existing members frequently to ensure that standards are being actively maintained. You can check if your agent is in ARLA by searching at http://www.arla.co.uk/.  

Is your agent handling funds correctly?

If they are an ARLA member, the answer is likely to be yes, as they will have undergone checks – you’re certainly covered if they do go under whilst they are a member. Other tell tale signs to look out for include:

• Rent not being quickly paid to you, despite the tenant having paid the agent. There’s one agent in Northampton currently that routinely pays landlords late, and by cheque, despite never having done this in 8 years previously – something is clearly not quite right here!
• Delays or failure to refund the tenants deposit.
• Delays or failure to administer repairs to your property – contractors don’t like working for agents that don’t pay them!
• Cheap management rates? – Belvoir has over 130 offices nationwide and the consensus is that it’s not really possible to manage a property for less than 8% + VAT. If your agent is charging you less than this, we’d suggest that either a) they aren’t doing everything you’re paying them for, or b) they aren’t doing it profitably, which long term is as much your issue as theirs.

Richard.

Should I take a tenant that receives Housing Benefits?

Most landlords who have been renting property for a while will have been asked this question – my staff get asked on a daily basis whether a given property will accept people who are receiving benefits, or not! Quite simply that’s because there’s big demand for properties that will accept benefit claimants – Local Authorities in Northampton and Rugby have ‘waiting lists’ running into the thousands which continue to grow. Demand is such that some of our competitors have started to specialise in this market, and specifically offer tenants in receipt of benefits, to landlords.

We haven’t gone that far! Whilst we do have a number of housing benefit tenancies, they account for less than 10% of our total portfolio, and that is ticking rather than growing. These tenancies can work well, but it’s really important that the landlord understands in advance how these tenancies work, and what the pro’s and con’s are. I’ll go through these below.

Should I, shouldn’t I?

The main question Landlords should ask is ‘do I need to accept Housing Benefit Tenants to rent my property’?, For the vast majority of Landlords, the answer to this question will be no – there will be a large enough supply of good quality private tenants happy to pay the rent you want. As such you’ll stick to the private market as it is, statistically, less hassle. Landlords generally need to consider a tenant on benefits :

1. if their property is in an area where there’s low demand from private tenants, or

2. if the local market is such that there’s a shortage of private tenants generally.

What are the pro’s?

There are certainly some. I have housing benefit tenants in one of my own properties, and after an iffy start, things have settled down and the tenancy works well.

1. You can get a premium rent for your property – Local Authorities have a set ‘scale’ they pay against, based on the size of the property, and not based on the area. As such if you’ve got a property in one of the poorer areas of town, you’ll get more for it with a Housing Benefit tenancy than with a private one.

2. In many cases the Council will provide a guarantee bond instead of a deposit. This is usually capped at 1 months rent, but in certain instances can go as high as £6,000.

3. Housing Benefit tenancies statistically last longer – if you’re claiming benefit and you want somewhere nice to live, the world is by no means your oyster! As such when tenants get somewhere nice, they tend to stay longer.

4. In certain areas of town, a housing benefit tenant may be a safer bet than a private tenant – a single parent with children is always going to be entitled to funds, whereas a private tenant on low income and in / out of work, may struggle more to pay.

What are the con’s?

Housing benefit tenancies are much maligned. It’s really about understanding the way they work, so you don’t end up disappointed.

1. Rent is generally paid in arrears, not in advance.

2. Local Authorities make 13 rental payments a year instead of 12. You still get the same amount of rent, only in smaller chunks.

3. Local Authorities like to pay the tenant, leaving them to pay the money on to you. Paying the tenant doesn’t happen in 100% of cases, but when it does it can go wrong, often because the tenant simply isn’t capable of managing their finances. If this continues the Local Authority will make a direct payment to yourself as landlord.

4. Local Authorities aren’t geared up to communicate with landlords, and very much see the tenant as their ‘customer’. If the tenants entitlement to benefit changes, you can bet they won’t tell you – the first you’ll know is when the money stops coming in. As such Housing Benefit tenancies can take a lot more management.

5. If you want to / need to get rid of your tenant, you can bet the Local Authority won’t help you – you’ll very much have to rely on the court process unless your tenant is happy to play ball!

6. As an agent we lose a little bit of flexibility on which tenant we let to – the Council doesn’t like to see us making arbitrary decisions.

The secret to success is hence understanding the above and managing it. If you get a reliable tenant, and a relaxed landlord, it can work really well and deliver a great yield for the landlord. If you get an unreliable tenant and an inflexible landlord, problems can ensue!

In the vast majority of cases Belvoir Landlords don’t need to consider tenants in receipt of Housing Benefit. Where we think it’s in your interests to do so, we’ll tell you when we appraise your property. We’ll explain the process clearly, and it’s your decision whether this is the route you go down.

Should a tenant pay a deposit?

You'll see there's a few lettings agents now who offer tenancies with 'no deposit'. This generally means that instead of a deposit, the tenants buys an insurance policy (costing say £10 per month) that's supposed to compensate the landlord in the event of problems with the tenancy. I get asked on repeated occasions whether this is a good thing?

My gut instinct was no, but we trialled 'no deposit' in Northampton about 18 months ago, at a time when it was really hard to find tenants. About 10 tenancies started in this way, and we had trouble with pretty much all of them. As such the trial stopped pretty quickly! There seemed to be 2 main issues:

1. It attracted the wrong sort of tenant - the type of tenant that couldn't save a months rent and a months deposit to move in, and didn't have anyone who would lend it to them!
2. When it came to the end of the tenancy, tenants didn't have to 'behave' to get their deposit back. What incentive was there to leave the house in a clean condition, or give the required notice period? Yes - in severe cases the insurer who had provided the policy would sue them 6 months later, but that didn't help us when we had a dirty property and an angry landlord.

As such now, every Belvoir tenant pays a deposit. It seems that most of the other decent agents have come to this view also. To be honest, in the 2010 market there's been no real reason to incentivise tenants as it's properties that have been at a premium. However some agents still trade with 'no deposit required' on their adverts, which always puzzles me! It may be they have found a way of making this work, but my gut instinct is that whilst this is probably a good deal for a tenant, it's in the landlord's interests to take a formal cash deposit and register it correctly. As we're the landlord's agent that's the course we should follow.

Richard.